i
The effect of micro-finance institutions
on the performance of small and
medium-sized enterprises in the
Democratic Republic of Congo
LN Kinimi
23179929
Mini-dissertation submitted in partial
fulfilment of the
requirements for the degree Master of Business
Administration at the Potchefstroom Campus of the
North-West University
Supervisor:
Prof Anet Smit
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ABSTRACT
Micro-finance institutions are leading a revolution in the financial sector, particularly in banking. This provides a renewed focus on the way financial credit is provided to the marginalised society of the developing countries. In the Democratic Republic of Congo, small and medium enterprises constitute almost 80% of the entrepreneurial population. There is therefore, considerable urgency to advance the performance and competitiveness of these small and medium enterprises.
The aim of this study is to establish the effect of micro-finance institutions, on the performance of small and medium enterprises in the Democratic Republic of Congo. Literature reviewed for this study provided insights into the effects of micro-finance institutions on the performance of small and medium enterprises that accessed micro-loans. This study comprises of 77 small and medium entrepreneurs that participated in the empirical research.
The performance of small and medium enterprises was assessed through the use of a questionnaire. The questionnaire consisted of statements on socio-demographics, the functioning of micro-finance institutions and the performance of small and medium enterprises.
The study revealed that the largest group of respondents were male entrepreneurs, married, in the age group category of 30 to 50 years, have a household size of 1 to 5 people and have 1 to 5 years of experience in business.
Entrepreneurs mostly utilized financial services such as saving accounts, money transfers and training and technology. Furthermore consulting services in the areas of leadership finance and operations were mainly received from micro-finance institutions. The study revealed that micro-finance institutions principally play the role of facilitator of growth, tool for social change, provider of banking systems and instrument for empowerment to SMEs.
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The two sources of financing utilized mostly by small and medium enterprises were loans from micro-finance institutions and from commercial banks. The borrowed finance was used principally to start a new business, expand an existing business and for working capital. The amounts of money borrowed from micro- loans were as follow: 5 000,00 (US $) or less, between 6 000 and 10 000,00 (US $) and 11 000,00 to 15 000, 00 (US $) The interest rates paid were from 11% to 20%, 21% to 30% and 51% and above. The collateral provided was in the form of physical assets such as a car or a house.
The results of the mean score factor indicated that on average, responses for questions 14 to 19 were above 2.5 on the scale of 1 to 4. The mean score above 2.5 was the indication that respondents agreed to a larger extend to these statements.
This leads to the conclusion that overall, the effect of micro-finance institutions on the performance small and medium enterprises in the Democratic Republic of Congo was positive, as proved by the mean score factor.
Keywords: effect, impact, micro-finance institution, small and medium enterprise, Democratic Republic of Congo
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ACKNOWLEDGEMENTS
This study was a result of many sacrifices in various ways. Therefore I would like to express my profound appreciation to:
My study leader Prof. Anet Smit, for her time, effort and exceptional supervision. The direction and support provided by her, resulted in the successful completion of this research. I have learned a lot throughout this journey.
All small and medium entrepreneurs who participated in the completion of the questionnaire. Without your responses the empirical section of this study would have been void.
My wife, Christinah Kinimi for always being a loving, supportive and understanding partner. Your consistent and unconditional endurance, support and encouragement made this study a success.
My boys, Kagiso, Caleb and Tychicus, I want you to find a place in your heart to forgive me for not providing my undivided father love, care and support during this study. However, your love and support sustained me during this time.
My late parents, my mother Alongo and father Jules, you remain alive in my thoughts.
My MBA syndicate group for their encouragement and support.
Above all, the almighty God, Jehovah, my creator and the source of my strength in all I undertake in my life.
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TABLE OF CONTENTS
ABSTRACT ... ii
ACKNOWLEDGEMENTS ... iv
TABLE OF CONTENTS ... v
LIST OF FIGURES ... viii
LIST OF TABLES ... ix
CHAPTER 1 INTRODUCTION AND SCOPE OF THE STUDY ... 1
1.1 INTRODUCTION ... 1
1.2 PROBLEM STATEMENT ... 2
1.3 RESEARCH OBJECTIVES ... 7
1.3.1 General objective ... 7
1.3.2 Specific objectives ... 7
1.4 SCOPE OF THE STUDY ... 9
1.4.1 Field of the study. ... 9
1.4.2 DRC profile and geographical demarcation ... 9
1.5 RESEARCH METHOD... 11
1.5.1 Phase 1: Literature review ... 11
1.5.2 Phase 2: Empirical study ... 12
1.5.2.1 Research design ... 12
1.5.2.2 Participants and sampling ... 13
1.5.2.3 Data collection ... 14
1.5.2.4 Statistical analysis ... 14
1.5.2.5 Limitation of the study ... 15
1.5.2.6 Ethical consideration ... 15
1.6 CHAPTER DIVISION. ... 16
1.7 CHAPTER SUMMARY... 17
CHAPTER 2 LITERATURE REVIEW ... 19
2.1 INTRODUCTION ... 19
2.2 THE DEFINITION OF MICRO-FINANCE... 19
2.3 THE ORIGIN AND SPREAD OF MICRO-FINANCE ... 20
2.4 THE FUNCTIONS OF MICRO-FINANCE INSTITUTIONS ... 23
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2.6 THE PRACTITIONERS IN THE MICRO-FINANCE MARKET... 28
2.7 THE PERFORMANCE OF MICRO-FINANCE IN SELECTED COUNTRIES ... 30
2.8 THE PERFORMANCE OF MICRO-FINANCE IN THE DEMOCRATIC REPUBLIC OF CONGO ... 33
2.9 THE FUTURE PROSPECTS OF MICRO-CREDIT ... 34
2.10 CHAPTER SUMMARY... 37
CHAPTER 3 THE EMPIRICAL STUDY AND RESULTS……….39
3.1 INTRODUCTION ... 39
3.2 GATHERING OF DATA ... 39
3.2.1 Development and construction of the questionnaire ... 39
3.2.2 Data collection ... 41
3.3 THE RESULTS AND DISCUSIONS OF THE FINDINGS ... 42
3.3.1 The Socio-demographic profile of the respondents ... 42
3.3.1.1 Gender ... 42
3.3.1.2 Marital status ... 43
3.3.1.3 Age group category ... 44
3.3.1.4 Household size (number of people). ... 45
3.3.1.5 Years of experience in business ... 46
3.3.2 The Functioning of micro-finance institutions ... 47
3.3.2.1 Utilisation of services offered by MFIs ... 47
3.3.2.2 Areas of consulting received from MFIs ... 49
3.3.2.3 The roles micro-finance institutions played in small and medium enterprises 51 3.3.2.4 Most recent micro-credit utilized by entrepreneurs. ... 53
3.3.2.5 Reasons to acquire micro-loans. ... 54
3.3.2.6 Financing amounts received ... 55
3.3.2.7 Interest rates charged. ... 56
3.3.2.8 Collateral required by the micro-finance institutions. ... 57
3.3.2.9 Constraints to obtaining micro-loans ... 59
3.3.2.10 Factors that influence the choice of MFIs ... 60
3.3.3 The Performance of small and medium enterprises ... 61
3.3.3.1 Effect on the performance of small and medium enterprises ... 62
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3.3.3.3 Factors that positively contributed to the performance of SMEs ... 64
3.3.3.4 Factors that negatively contributed to the performance of the businesses ... 65
3.3.4 Reliability of the questionnaire measuring the constructs ... 66
3.3.5 Mean of score factor. ... 67
3.1 CHAPTER SUMMARY... 68
CHAPTER 4 CONCLUSION AND RECOMMENDATIONS ... 70
4.1 INTRODUCTION ... 70
4.2 CONCLUSIONS OF THE EMPIRICAL STUDY ... 70
4.2.1 Socio-demographic profile of the respondents ... 70
4.2.2 The functioning of micro-finance institutions ... 70
4.2.3 Performance of small and medium enterprises ... 71
4.3 RECOMMENDATIONS ... 72
4.4 THE CRITICAL EVALUATION OF THE STUDY ... 73
4.4.1 Primary objectives revisited ... 73
4.2.2 Secondary objectives revisited. ... 73
4.5 SUGGESTIONS FOR FUTURE RESEARCH ... 75
4.6 CHAPTER SUMMARY... 75
BIBLIOGRAPHY ... 77
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LIST OF FIGURES
Figure 1.1: Map of Democratic Republic of Congo 11
Figure 1.2: Chapter layout of the study 16
Figure 2.1: The different functions of micro-finance institutions 24
Figure 2.2: Reasons for MFIs to serve SMEs 26
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LIST OF TABLES
Table 3.1: Gender of respondents 43
Table 3.2: Marital status of respondents 44
Table 3.3: Age group category of respondents 45
Table 3.4: Household size (number of people) of participating entrepreneurs 46
Table 3.5: Years of experience in business 47
Table 3.6: Utilization of services offered by MFIs 48
Table 3.7: Areas of consulting received by the entrepreneurs 50
Table 3.8: The roles played by micro-finance institutions 51
Table 3.9: Most recent source of micro-credit utilized by the entrepreneurs 53
Table 3.10: Reasons for acquiring micro-loans 54
Table 3.11 Financing amount granted to the entrepreneurs 56
Table 3.12: Interest rates charged to the entrepreneurs 57
Table 3.13: Collateral required obtaining micro-credit 58
Table 3.14: Constraint faced by the entrepreneurs 59
Table 3.15: Factors that influence the choice of micro-finance institution 61
Table 3.16: Performance of small and medium enterprises 62
Table 3.17: Changesindividuals experienced 63
Table 3.18: Factors that positively contributed to the performance 65
Table 3.19: Factors that negatively contributed to the performance 66
Table 3.20: Reliability and internal consistency of the constructs 67
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CHAPTER 1
INTRODUCTION AND SCOPE OF THE STUDY
1.1 INTRODUCTION
Micro-finance institutions (MFIs) are being recognised as one of the financial tools that alleviate poverty, provide solutions to unemployment and stimulate economic growth in developing countries. Small and medium entrepreneurs in these countries are most of the time confronted with various challenges. One of those challenges is access to micro-credit or micro-loans which is considered as an important part of doing business.
According to Peprah and Muruka (2010:52), Brune (2009:6), Lindsay (2010:3), and Nwigwe et al. (2012:34) micro-finance institutions aim at reducing poverty worldwide among financially excluded people. Suberu et al. (2011:253) stated that micro-finance institutions have a grass roots orientation and greater expertise in financing smaller enterprises.
Perkowski (2012:1) said that access to finance is a challenge for businesses in any country. Entrepreneurs in developing countries require micro-credit and other services from micro-finance institutions for several reasons; to speedily expand their operations, for start-up capital, for working capital or for other purposes. Providing micro-credit and other services to small and medium enterprises has traditionally been challenging for micro-finance institutions. On the one hand, the challenge may be related to a lack or non-existence of financial history and the inability to provide required collateral among small and medium enterprises. On the other hand the absence of credit bureau data and regulatory bodies at national level is challenging. In addition, Suberu et al. (2011:254) stated that a shortage of both debt and equity financing is one of the major barriers to rapid development of the small and medium enterprises.
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Ullo et al. (2009:33) referred to the study conducted by the Investment Climate assessment, which concluded that access to finance is the second most constrictive challenge for doing business in the Democratic Republic of Congo (DRC). In an attempt to address this challenge, the micro-finance institutions in the DRC have stepped in to provide micro-credit and related services to Small and medium enterprises and people who required assistance.
These attempts by micro-finance institutions are in line with the Millennium Development Goals centered on poverty eradication. These goals include among others, poverty eradication, universal primary education, gender equality and empowerment of women (Babandi, 2011:126). Mutengezanwa et al. (2011:162) hoped that micro-finance institutions will assist in the achievement of these goals, as they are a viable tool used in the eradication of poverty thus improving social and economic welfare of the people.
Advocates of micro-finance institutions believe that micro-credit and related services are essential tools to enhance competitiveness and the growth potential of small and medium enterprises in developing countries such as the DRC. In light of the above, it can be argued that the services provided by micro-finance institutions should have an impact by creating wealth, assets, food security and reduced variance in income. This research seeks to establish whether micro-finance institutions have had an effect on the performance of small and medium enterprises in the DRC.
1.2 PROBLEM STATEMENT
Micro-lenders, banks and other lending institutions provide services that allow people and small and medium enterprises to borrow, save and invest, which further support and strengthen economic activity. Within emerging markets, the function of micro-finance institutions is to provide credit and financial services such as saving, insurance and other necessary amenities that develop income-earning in small and medium enterprises (Simeyo et al. 2011: 8291).
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Emerging markets recognise small and medium enterprises as key drivers of growth and their contribution to the economy is believed to be significant. Many small business owners in developing countries such as the DRC maintain that the aspects that constrain business growth are the absence of finance credit. Consequently, micro-finance institutions fill an important gap within the financial services industry by offering micro-loans and other services to individuals as well as small and medium enterprises (Suberu et al. 2011:253).
These individuals as well as the small and medium enterprises were unable to access loans and services from commercial banks or formal financial institutions. These latter institutions failed to some extent to address the credit need of the real sector of the economy of the developing countries (Suberu et al. 2011:253). The Democratic Republic of Congo has reformed its financial sector in order to provide financial institutions and businesses with an environment in which they can achieve desirable growth (Opportunity International, 2011:1).
In pursuit of growth, the Democratic Republic of Congo Government, with the assistance of various role players developed policies to make access to finance and other financial services easier (Ullo et al. 2009:33). This was done in chase of an increased gross domestic product for the country.
AThe adoption of the new policies has resulted in an influx of local and international micro-finance institutions that lent to small and medium enterprises (Ullo et al. 2009:33). Despite this sudden increase of micro-finance institutions, one could not, with confidence, point out signs of business growth among small and medium enterprises. They still struggled and operated in an informal sector.
On the one hand, while these institutions have lent and provided services to small and medium enterprises, the effect of these loans and services to small and medium enterprises could not be argued without an empirical study. On the other hand, if the effect of micro-finance institutions on the performance of small and medium
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enterprises was visible in the Democratic Republic of Congo, why was the number of small and medium enterprises served by these institutions so insignificant in relationship to the vast need?
In spite of the emphasis on the role of micro-finance institutions, Olu (2009: 537) revealed that the empirical evidence emerging from various studies about the effect of micro-finance on entrepreneurial development have so far yielded mixed results that are inconclusive and contradictory. Some of the failures are attributed to high costs (high interest rates) in servicing loans to compensate for the risks (Simeyo et
al. 2011: 8291; Lindsay, 2010:14).
In a study conducted in Kenya among youth entrepreneurs, Simeyo et al. (2011: 8291) found that micro-entrepreneurs who secured funds from micro-finance institutions spent the bulk of their returns on their investments in paying off the cost of the capital, thus leaving them with none or little savings for reinvestment.
Although it is believed that micro-finance has a positive effect, it is also clear that there are negative side effects (Kiweu, 2011:88). Overall, the effect of micro-finance institutions on small and medium enterprises can be positive or negative (Simeyo et
al. (2011: 8292). Furthermore, the impact of micro-finance on small and medium
enterprises has not received adequate empirical research attention in the DRC.
Ullo et al. (2009:34) and Molly, (2012:13) indicated that the non-existence of financial institutions in most parts of the country poses a challenge to small and medium enterprises, who envisage access to financial services. The percentage of small and medium enterprises and people that access micro-loans to develop small and medium enterprises in the DRC is relatively insignificant in relationship to the vast need. Overall, at a national level, lack of access to credit appears to be huge problem.
However, micro-finance institutions who gain access to the media claim that the micro-loans or micro-credit and other services they provide have made significant
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impact in the lives of beneficiaries. Such claims were made on a variety of media such as radio, written- and electronic publications, where inserts of stories of success as a result of micro-finance institution interventions were marketed. These opinion-based stories need to be scientifically tested by means of empirical research.
The reformation of policies to foster business growth indicates acknowledgement that the economic success in the DRC depends largely on the growth of small and medium enterprises. The DRC is a country where public enterprises are inefficient; therefore, private-owned businesses, mainly small and medium enterprises contribute greatly to the total value added. Brasey (2012:2) said that the Democratic Republic of Congo's private-owned businesses made up almost 80 % of the total capably employed.
The following research questions were formulated based the above-mentioned description of the research problem. The research questions were clustered in three categories:
Firstly, what is the socio-demographic profile of small and medium entrepreneurs in the Democratic Republic of Congo?
Secondly, what is the function of micro-finance institutions in the Democratic Republic of Congo? This led to additional questions such as:
o What are the services offered by micro-finance institutions, utilized by small and medium enterprises?
o What are the consulting services that small and medium enterprises receive from micro-finance institutions?
o Which roles do micro-finance institutions play in the performance of small and medium enterprises?
o What are the most recent sources of micro-credit that small and medium enterprises utilize to acquire micro-loans?
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o What are the reasons for small and medium enterprises to acquire micro loans?
o Which amounts of finance do small and medium enterprises receive? o What are the interest rates charged?
o What collateral is required for micro-loans?
o What are the constraints that face small and medium enterprises in obtaining micro-loans?
o What are the factors that influence the choice of a micro-finance institution?
Thirdly, what is the performance of small and medium enterprises in the Democratic Republic of Congo? This led to more questions:
o What are the changes that small and medium enterprises experience as businesses after contracting micro-loans and other services?
o What are the changes that entrepreneurs experience as individuals after contracting micro-loans and other services?
o What are the factors that positively contribute to the performance of the businesses?
o What are the factors that contribute to a decline in the performance of the businesses?
Unless a study of this nature is carried out, it is difficult to empirically establish the effect or impact of micro-finance institutions on small and medium enterprises in the Democratic Republic of Congo. Otherwise, the effect of micro-finance institutions on small and medium enterprises in the Democratic Republic of Congo remains opinion based, as claimed by micro-finance institutions. For that reason, this study was intended at collecting applicable information to establish if micro-credit and other services provided by micro-finance institutions to small and medium enterprises improves or worsens their performance.
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The following research objectives endeavoured to answer the research questions above.
1.3 RESEARCH OBJECTIVES
1.3.1 General objective
The general objective of this study is to investigate the effect of micro-finance institutions on the performance of small and medium enterprises in the Democratic Republic of Congo.
1.3.2 Specific objectives The specific objectives are to:
Firstly, gain insights into the effect of micro-finance institutions on the
performance of small and medium enterprises;
Secondly, establish the socio-demographic profile of small and medium
entrepreneurs who contracts micro-credit;
Thirdly, assess the functioning of micro-finance institutions in the Democratic
Republic of Congo. The assessment of the functioning of micro-finance institutions is to:
o Asses the services offered by micro-finance institutions that small and medium enterprises utilize;
o Establish the consulting services that small and medium enterprises receive from micro-finance institutions;
o Assess the roles that micro-finance institutions play to small and medium enterprises;
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o Establish the most recent sources of micro credit that small and medium enterprises utilize to acquire microloans;
o Establish the reasons why small and medium enterprises require micro loans;
o Determine the amounts of finance which small and medium enterprises receive;
o Establish what interest rates are charged;
o Determine the collateral required for a micro-loan;
o Ascertain the constraints that affect small and medium enterprises in obtaining micro-loans;
o Establish the factors that influence the choice of micro finance institutions;
Fourthly, assess the performance of small and medium enterprises. The
performance components are:
o Identify the changes that small and medium enterprises experienced as businesses after contracting micro-loans and other services;
o Establish the changes that entrepreneurs experienced as individuals after contracting micro-loans and other services;
o Ascertain the factors which positively influenced the performance of the businesses; and
o Determine the factors that contributed to a decline of performance in the businesses.
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1.4 SCOPE OF THE STUDY
The scope of this study is constituted by the field, geographical location and the profile of the country.
1.4.1 Field of the study.
The study falls in the field of finance with specific reference to micro-finance.
1.4.2 DRC profile and geographical demarcation
This research focused on small and medium enterprises in the DRC. The DRC is situated in the centre of Africa. Its nine neighbouring countries are Angola, Republic of Congo, Central African Republic, South Sudan, Uganda, Rwanda, Burundi, Tanzania and Zambia (British Broadcasting Corporation, 2012:1). The name of the country has been changed several times. After independence it was known as the Democratic Republic of Congo.
The name DRC was changed to Zaire and later changed back to the DRC. Currently, the Democratic Republic of Congo has eleven provinces and it has been proposed to subdivide bigger provinces. The capital city is Kinshasa where the central Government is based. Each province has a provincial capital and runs its own administration.
The country is well known on the one hand for its abundant agricultural and mineral resources. On the other hand it is known for civil wars lead by rebel militias, corruption, maladministration, weak infrastructure and other ill elements that characterise the African continent, such as weak democratic institutions amongst others (British Broadcasting Corporation, 2012:1).
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The Democratic Republic of Congo covers 2,344,858 square kilometres of land, making it the 12th largest country in the world which is equivalent to two-thirds of Western Europe (British Broadcasting Corporation, 2012:1). The total population is estimated around seventy (70) million inhabitants (no official census has taken place for many years), 80% of which lives on less than US$ 1 a day (Opportunity International 2011:1). The DRC‟s poverty reduction and development strategies emphasise support for the private sector and in particular micro- and small enterprises. With its immense potential, the DRC can become one of the drivers of African growth, if a conducive business climate is practised.
Since its independence in 1960 from Belgium, the DRC experienced sporadic peace during the Presidency of Joseph Mobutu until 1997. Thereafter it has been characterised by civil wars until today. In 1997 Rwanda and Uganda, with the backing of some Western Countries invaded the DRC and installed Laurent Kabila as President. He renamed the country the DRC. Laurent Kabila was assassinated in 2001 and his son Joseph Kabila took over after him as President. The DRC‟s troubles continued with Rwanda and Uganda providing support to various rebel groups.
However, the country is making inroads into the global arena in many ways, through democratisation of different institutions and improvement in different spheres of the economy. The collapse of the economy, for many years created Congolese entrepreneurs. Many in Congo survive by means of personal initiatives to earn a living for their families. Economic activities are wide ranging in the DRC, with much emphasis on the informal sector. Currently, only 1% of the Democratic Republic of Congo‟s citizens have access to basic financial services (Opportunity International 2011:1). Figure 1.1 is a map of the Democratic Republic of Congo.
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Figure 1.1: Map of Democratic Republic of Congo.
Source: www.mapsofworld.com
1.5 RESEARCH METHOD
In a bid to accomplish the set of specific objectives, this research was conducted by utilizing two methods namely, a literature review and an empirical study.
1.5.1 Phase 1: Literature review
Literature reviews regarding the effects of micro-finance institutions on businesses were sourced. These sources included:
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Published peer reviews and academic journals on micro-finance such as:
Harvard Business Review, African Journal of Business Management, Journal of Research in International Business Management, The Journal of Business and Enterprise Development, Australian Journal of Business and Management Research;
Publications and internet searches: United Nations Development Fund
(UNDP), Reserve Bank of Congo, World Bank, International Monetary Fund (IMF), Master and doctoral theses; and
Newspapers such as Le Potentiel, L‟Observateur, Uhuru, La Colombe, Elima, and others.
1.5.2 Phase 2: Empirical study
The empirical study consisted of the research design, participant- and sample data collection, statistical analysis and ethical considerations when selecting respondents from small and medium enterprises.
1.5.2.1 Research design
The aim of the research design was to facilitate the collection of information and data without disruption during the study. This study employed a quantitative method to examine the effect or performance of small and medium enterprises. The empirical study used one source of information mainly: a structured questionnaire to gather statistical data or information. The questionnaire consisted of three sections (see Appendix A: Questionnaire for empirical study).
Section A gathered general data from respondents regarding their socio-demographic profiles. Respondents were requested to answer questions on gender, age group, marital status, household size and experience in business. Respondents
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were required to select only one appropriate answer by marking an X in the relevant box for each statement.
Section B assessed the functioning of micro-finance institutions. Participants responded by answering either yes or no to questions six, seven and eight in the questionnaire, marking an X in the relevant box for each statement. Questions nine to thirteen provided respondents with the option to select an answer by marking an X in the appropriate section. Questions fourteen and fifteen allowed respondents to express the extent to which they agreed with the claim of the statement. In total four options were provided on a Likert scale.
Section C measured the performance of small and medium enterprises. It provided respondents with questions to establish the effect of micro-finance institutions on the performance of small and medium enterprises. This section comprised of questions sixteen, seventeen, eighteen and nineteen. Questions in this section followed the same principles as indicated in section B for questions fourteen and fifteen.
1.5.2.2 Participants and sampling
According to Onwuegbuzie and Collins (2007: 288) the size of the sample is influenced primarily by the research objectives, research questions, and, subsequently, the research design. The target participants for this study were small and medium enterprises (beneficiaries of micro-finance loans). Due to the study emphasis on the effect of micro-finance on small and medium enterprises, participants were selected from those who received funds for business purposes. In total seventy-seven (77) entrepreneurs who made use of micro-finance institutions in the Oriental Province area participated in the study.
The study employed the purposive sampling technique to overcome significant challenges for attaining an analysable sample. Extreme (or deviant) case sampling of purposive sampling was used because this research focused on notable
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outcomes that typically highlighted, the negative or positive (failures or successes) effects of micro-finance institutions on small and medium enterprises in the DRC.
The choice of purposive sampling was influenced by the fact that the population was described as hidden, because a complete sampling frame could not be constructed due the absence of a central database of beneficiaries of micro-loans and other services in the area. Even though random sampling could not be done, the effects of micro-finance lenders on small and medium enterprises needed to be researched using non-random sampling techniques.
1.5.2.3 Data collection
Participants were requested to complete the questionnaire that was personally distributed during the small and medium enterprise forum. The rationale of the study was explained to the participants and they were assured that information they provided would be treated with confidentiality. Permission was obtained from the respondents to participate in the study. Each question was thoroughly explained due to the fact that some respondents have a low literacy level. After completion, questionnaires were collected from the respondents on the same day. In total 80 questionnaires were distributed, but only 77 were collected, which resulted in 96.25% response rate.
1.5.2.4 Statistical analysis
Data collected was analysed using the Statistical Consultation Services of the North-West University. Statistical analysis provided insights to determine the performance of small and medium enterprises. These outputs served to draw conclusions and provide recommendations on the effect of micro-finance institutions on the performance of small and medium enterprises in the DRC.
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1.5.2.5 Limitation of the study
This study was done from the perspective of small and medium enterprises to assess the impact of the micro-finance on their businesses.
The DRC is a vast country with an inadequate transportation system, which makes it difficult to reach respondents;
Travelling costs to reach targeted small and medium enterprises for the completion of the questionnaire posed a challenge;
Some of the small and medium entrepreneurs were only semi-literate and were unable to complete the questionnaire on their own. They had to be assisted with the completion of their questionnaires;
Reaching respondents through electronic means were not an option, due to old technology or the absence thereof among small and medium enterprises. The questionnaire was handed only to small and medium enterprises that were accessible to the researcher during the small and medium enterprise forum;
The sample size might not be representative of the entire DRC. Even so, the quality of the responses was satisfactory;
Limited information is available on the effect of micro-finance institutions on SMEs in the DRC;
1.5.2.6 Ethical consideration
Information and data provided by participants was used for research purposes. Assurance was given to participants that the information they provided would be treated as confidential and that the outcome will be used for research purposes only.
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1.6 CHAPTER DIVISION.
Figure 1.2 summarises the chapters' layout. This was the guideline the research followed during the course of the investigation.
Figure 1.2: Chapter layout of the study
Chapter Content
Chapter 1: Introduction and scope of the study
Chapter 1 consists of the opening and the scope of the study which provides the problem statement, research objectives, scope of the study and research method. Chapter 2: Literature
review
Chapter 2 focuses on the literature review of the study which provides information on the origin and spread of micro-finance/ the function of micro-finance institutions. Focus is also placed on commercial banks in the micro-finance market. Different practitioners of micro-micro-finance are described. Furthermore, findings of the effects of micro-finance institutions in different countries and in context of the Democratic Republic of Congo are addressed in the literature review.
Chapter 3: Results and discussions of the empirical study
Chapter 3 of the study contains the results and the discussions of the empirical investigation. It enfolds data
gathering which includes the development and
construction of the questionnaire as well as the data collection of the employed method in the research.
Chapter 4: Conclusion and recommendations
Chapter 4 ponders on conclusions, recommendations, attainment of the study objectives and concludes with suggestions for future research.
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1.7 CHAPTER SUMMARY
This chapter begins with an introduction, which provides the background and scope of the study on the effects of micro-finance institutions on the performance of small and medium enterprises in the DRC. The introduction consists of an opportunity that micro-finance institutions fulfil in developing countries. It is about the leverage of entrepreneurial drive on the emerging market and the role micro-finance institutions plays in many spheres of small and medium enterprises. It mainly draws from research on micro-finance institutions in other parts of the world. This previous research has indicated that the dual effects of micro-finance on small and medium enterprises have either improved or worsened business performance.
The problem statement indicates that some small and medium enterprises in the DRC are making use of services provided by micro-finance institutions, while others do not even attempt to approach micro-finance institutions, and continues their work in the informal sector. However, a study has not yet been carried out to determine the effect of micro-finance on small and medium enterprise performance in the DRC. Therefore the effects of micro-finance institutions on small and medium enterprises require investigation.
The study set out a general objective: The investigation of the effect of micro-finance institutions on the performance of small and medium enterprises. Additional specific objectives are pursued in section 1.3.2 in line with the research questions stated in section 1.2 of the research problem.
The study employs two methods, namely a literature review and an empirical study. The literature review consists of approved publications on the subject of the effect of micro-finance on small and medium enterprises. The empirical study briefly describes the research design, participants and samples, data collection, statistical analysis, limitations and ethical considerations of the field study.
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The following chapter consists of the literature review. This literature review was derived from approved publications. The literature review was undertaken to highlight different views on the origin, definition, function, commercial banks' provisions of micro-credit, the future of micro-finance and empirical studies carried out elsewhere in different parts of the world.
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CHAPTER 2
LITERATURE REVIEW
2.1 INTRODUCTION
The effect of micro-finance throughout the world is well recognised and documented. According to Kiweu (2011:88) the literature on micro-finance is abundant, but the majority of the studies tend to be descriptive with little evidence and tentative research findings due to inadequate data. Academic analysis of micro-lending has been sporadic, as most developmental research in the period from the 1950s through the 1990s concentrated on subsidised credit, with little to no repayment incentives (Cooke, 2011:70).
Nevertheless, in the last few decades, it has been acknowledged that some studies have begun to offer in-depth analysis on the topic. Dimensions that are based on an empirical approach are being investigated with increased public outline on this particular poverty reducing tool. These studies have contributed to a better understanding of issues and emerging trends in the field of micro-finance (Kiweu, 2011:88).
2.2 THE DEFINITION OF MICRO-FINANCE
There are numerous definitions of micro-finance, some of which evolved using the new delivery methodologies developed during the last twenty five years, they were well summarised by Roodman (2010:1):
Micro-finance is the provision of financial services to low-income clients, including consumers and the self-employed, who traditionally lack access to banking- and related services;
Micro-finance refers to institutions that specialise in making very small loans to very poor people in developing countries. Instead of using collateral to
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assure repayment, these lenders harness social pressure within the borrower's community;
The provision of small loans (micro-credit) to poor people to help them engage in productive activities or grow very small businesses. The term may also include a broader range of services, including credit, savings, and insurance.
Rouse (2012:1) provided a contemporary and all-encompassing definition that micro finance is the provision of savings accounts, loans, insurance, money transfers and other banking services to customers that lack access to traditional financial services, usually because of poverty. The Consultative Group to Assist the Poor (2013:1) presented a limited definition of micro finance as financial services for poor and low-income clients offered by different types of service providers.
Roodman (2010:5) again contributed to the definition of micro finance by arguing that micro-finance is the business-like provision of financial services to the poor, and provision of financial services to the poor, in ways that depend on outsiders, especially socially motivated ones, for finance and advice.
This study used micro-finance institutions narrowly, referring to Governmental and non-Governmental organizations, non-bank financial institutions, and commercial banks that specialise in micro-finance as defined above, as well as additional micro finance programs.
2.3 THE ORIGIN AND SPREAD OF MICRO-FINANCE
People, communities and businesses have been borrowing, lending and saving since trade and other forms of transactions existed. Micro-finance practices have taken place within different communities using their own systems and methods, with or without external support or assets (Seibel, 2007:13). The sector is new in that it has only recently drawn attention as a response to the failure or indifference of
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commercial banks (formal financial system) to serve the needs of low-income households and small and medium enterprises.
Although micro-finance has gained popularity in recent years the concept is ancient, with institutional origins for instance in European countries in the 18th and 19th century, Nigeria in the 16th century and India around 1000 BC (Seibel, 2007:13). Therefore, the concept of micro-finance can be both old and new.
The African concept of micro-finance has long been practised in many forms. The practice of lending in the agricultural sector has always been common among families or villagers (Babandi, 2011:127). They have been lending fields or seed to other members for farming with the expectation of a harvest return. This form of micro-finance practice has also been exercised for animal procreation. A community member lends an animal to another member for procreation with the expectation of gaining more animals in return (Engel & Lutz, 2013:35). Depending on the agreed terms and conditions, the party that borrows returns to the lender the initial (capital) and the expected interest (mainly in the same nature that was borrowed) (Engel & Lutz, 2013:35).
This form of financing activities is linked to capital repayment plus interest. In some cases there is no obligation imposed by the lending party on the receiving person or community. This type of lending is prevalent among close family members or friends to help each other to overcome poverty.
Seibel (2007:12) states that the term micro-finance was first introduced in 1990 with the specific connotation of encompassing micro-credit and micro-savings as well as other financial services, in response to Vogel‟s claim that savings were the forgotten half of rural finance.
Haque and Harbin (2009:1) asserted that micro-credit was unheard of until Dr. Muhammad Yunus, an American educated economics Professor, began his Micro-Credit Scheme as a poverty busting tool with a deep conviction from the beginning
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that it could serve to alleviate poverty. Since the mid-1970s, there has been an explosion of activity in the micro-finance sector and several models have been developed, various services have been pioneered, and many international organisations have become involved (Maksudova, 2010:1; Roy, 2003:2).
Less known but equally important, is the demand for saving and financial transaction opportunities for individuals and businesses in developing countries (Roy 2003:2). Entrepreneurs and individuals in these countries are looking for a convenient way to make safe deposits and transactions with their money (Roy 2003:3). It is acknowledged that these deposits can fund micro-credit activities. This is particularly true in countries where banking systems have collapsed or became non-existent such as in the DRC, where the banking system is not providing services to the majority of the population (Engel & Lutz, 2013:35).
Through the provision of micro-loans to entrepreneurs and small businesses, the Grameen Bank has empowered the poor, giving them the resources to generate additional income, stimulate value creation and in turn, development (Roy 2003:2). Therefore, the micro-finance model, pioneered by the Grameen Bank in Bangladesh (Roy 2003:2) could become an instrument to addresses this impasse for the Democratic Republic of Congo. Likewise, savings based micro-finance institutions have been found to be better positioned to endure periods of financial downturn. Savings based on micro-finance institution principles reinforced funds through local deposits. Furthermore, local funding is generally more stable and carries no exchange rate risk.
Micro-finance institutions, as an instrument for stimulating income generating activities, were introduced by NGOs in the 1970s and have traditionally offered supply-driven micro-credit to subsistence farmers in rural areas, and focused on poverty reduction objectives (Seibel 2007: 12).
Haan and Lakwob (2010:351) indicated that the 1990s saw the expansion of micro-finance as both a replacement of and a complementary service to commercial
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banking. This phenomenon was attributed to micro-finance institutions' typical characteristics such as proximity to customers, speed and flexibility of service, hidden transaction costs, diversity of services and products, as well as mutual reciprocity.
2.4 THE FUNCTIONS OF MICRO-FINANCE INSTITUTIONS
Micro-finance institutions provide many functions to those in need of financial and related services in many parts of the world. They provide capital to entrepreneurs, giving them the means to snatch an opportunity to start a business, expand an existing business or to use as working capital, which may lead to improve profit margins as well as their lives.
Seibel (2007:13) referred to micro-finance institutions as a system of financial intermediation between micro-savers and micro-borrowers; it may further include micro-insurance and other financial services such as money transfers. Jegatheesan
et al. (2011:300) pointed out that micro-finance provides different functions to their clients; supplying access to various financial services such as credit, savings, micro-insurance, remittances, leasing to low-income clients including consumers and the self-employed, who traditionally lack access to banking and related services.
Furthermore, micro-finance institutions have been identified as being vitally important to the growth of small and medium enterprises in developing economies (Roy 2003:2). It is believed that it contributes to job creation, innovation and its welfare effects are visible in different countries.
The micro-finance revolution has taken hold across developing economies and has for ever impacted the world of business as described in section 2.7 the performance of micro-finance in selected countries. It is argued in the Democratic Republic of
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Congo that micro-finance institutions make indispensable contributions to the market economies (Opportunity International 2011:1).
Firstly, they are an integral part of the reformed process that pervades and defines financial institutions. Micro-finance institutions play a crucial role in the financial innovations that lead to technological change and productivity growth. Undeniably, micro-finance institutions are agents of change, because they are changing the financial sector.
Secondly, micro-finance institutions provide essential mechanisms by which many entrepreneurs enter the economic mainstream. Micro-finance institutions make it possible for entrepreneurs to access the quest of their economic success. In this evolutionary development, micro-finance institutions play a crucial and indispensable part in providing the “collective glue” that binds together both entrepreneurs and the financial institution‟s activities (Kessy & Tembu, 2010: 109). After the study of the literature, the following functions are summarised in figure 2.1.
Figure 2.1: The different functions of micro-finance institutions
Function Description
Micro-credit or micro-loans An amount of money given to the borrower with the option of future repayment.
Saving Deposits made to be used in future, in exchange for a
series of savings made.
Insurance Insurance involves a contribution made into a pool, to
spread the risk between individuals on the assumption that something may go wrong.
Pension An amount of money deposited to benefit from at a
specified and generally distant date in the future in exchange for a series of savings made.
Money transfers Micro-finance institutions provide facilities to borrowers
to transfer money to families, friends and make payments to small and medium enterprises, suppliers
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and other creditors. Consulting services,
including education.
In addition to lending money, micro-finance institutions also offer consulting services, including basic business education to loan beneficiaries on how to manage their finances and run a business efficiently.
Group lending. Micro-finance institutions prefer their borrowers to create
a group, so as to ensure timely repayments. Formation of groups act as support for each other and every member can guarantee the repayment of other members of the group. Through group lending, micro-finance institutions collect payments more efficiently and the group can offer support to the borrower that faces any challenge of repayment.
Empowerment. Lending to the poor is definitely better for the right
development of the community. They use the proceeds for educational purposes of the children or to purchase food for the family‟s survival. Apart from these, lending to the poor also resolves the problem of inequality that has been prevailing in our society for many years.
Technology. Technology used by micro-finance institutions has
assisted beneficiaries to be connected with the rest of the world. This is how micro-finance has played a vital role in connecting the world in pecuniary manner.
Source: Muntengezanwa et al. 2011.
The Consultative Group to Assist the Poor 's (2012:16) survey results contain seven reasons that attract micro-finance institutions to serve small and medium enterprises. Among those reasons, business growth opportunity topped with 85%, followed by follow micro-client all the time 69%. Increased competition among micro-clients and higher profitability ranged respectively within 35% and 37%. Disbursement target/pressure accounted for 21%, incentive from funders 17% and incentives from Governments 15%. This gives a clear indication that both the micro-finance
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institutions and borrowers are pursuing growth strategies. Reasons for micro-finance institutions to service small and medium enterprises could be influenced by the technical, economic, political and the social factors to combine traditional and modern micro-finance approaches. Figure 2.2 provides reasons micro-finance institutions served small and medium enterprises.
Figure 2.2: Reasons for MFIs to serve SMEs.
Source: The Consultative Group to Assist the Poor (2012:16)
During the past few years, micro-finance practices were increasingly being integrated as part of financial services offered by commercial banks in most developing countries that seek business growth. Commercial or traditional banks have also entered this market segment that used to be unattended by these institutions.
2.5 THE COMMERCIAL BANKS IN THE MICRO-FINANCE MARKET
Providing micro-credit to small and medium enterprises is no longer confined to Micro-finance institutions. Commercial banks are now competing with micro-lenders. Commercial banks have entered the micro-finance market in increasing numbers over the past years (Delfiner & Perón, 2007:9). This phenomenon is known as downscaling in the financial sector. Commercial banks are stimulated to downscale
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due to various reasons. These motives are linked to the bank‟s quest for new markets or revenue generation and to the growth potential of small and medium enterprises, ignored for a long time.
Other reasons include growing competition in markets traditionally served by commercial banks and a declining customer base due to recession or economic downturn, which results in a decline in the bank‟s returns. This has encouraged the search for new market niches (Delfiner & Perón, 2007:9).
In most developing countries, like the DRC where institutional micro-finance is in an infant stage, and an unattended market segment exists; this market is viewed by commercial banks as an instant source of rapid growth and positive returns. Nevertheless, commercial banks' focal enticement in the micro-finance market is linked to the fact that profit in this segment is in line with the risks sustained (Kiweu, 2011: 100).
This new approach has made it possible for commercial banks to diversify their loan portfolio, with a particular focus on a segment formerly unattended (Kiweu, 2011: 99). Commercial banks increased their client base to include micro-credit borrowers. This new market has compelled commercial banks to expand their branch networks to accommodate new clients.
These commercial banks have adopted a number of strategies employed by micro-finance institutions, which set them apart from more traditional lending establishments: unsecured lending facilities, a simpler and more condensed application process, personal visits by bank staff to clients to avoid the branch application process, just a few days for application approval, and a high interest rate (Kiweu, 2011: 103).
The inclusion of micro-finance in the commercial banks' portfolio has assisted them to fulfil their corporate social responsibilities like caring for the most disadvantaged social sectors and improving their public image in general. Commercial banks'
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loans to small and medium enterprises in developing countries have revolutionised the way finance is progressing in the largely informal business sector.
2.6 THE PRACTITIONERS IN THE MICRO-FINANCE MARKET
Seibel (2007:13) declared that micro-finance covers a wide array of micro-finance institutions. These include indigenous rotating savings, credit associations, self-help groups, financial cooperatives, rural banks, community banks, non-bank financial institutions which include credit non-Governmental organisations, all the way up to development banks and commercial banks. They may also comprise of moneylenders and private deposit collectors.
Over the years views on micro-finance institutions have been an issue of debate. Kiweu (2011:88) described two views on micro-finance institutions namely, the traditional and commercial. Advocates of the traditional view or poverty focused, believe that micro-finance is a social product and should not offer credit for profit basis. The base of their argument is that pioneer institutions in the sector were non-profit making, which were non-Governmental organisations with the aim of poverty alleviation (Kiweu, 2011:88-89).
The commercial view believes that micro-finance is like any commercial institution and profit should be pursued on its activities. This view has had the wrong connotation for micro-finance, and it indicates a mission flow in the motivation of those lending to the poor. Micro-finance now attracts large scale private investment through venture capital and other forms.
Molloy (2012:19) indicates that a number of financial organisations entered the micro-finance market with an economic motive and not a social one. They charged high interest rates to desperate customers seeking for a corridor out of poverty. The result has been a surge in micro-loan defaults.
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Commercialisation gave rise to its own breed of “loan sharks”. It has resulted in devastating effects on the communities that micro-finance was designed to help and has perpetuated indebtedness (Molloy, 2012:19). Organisations with social intent moved away entirely from the micro-finance concept in support of other approaches of economic development in developing countries. Figure 2.3 classifies practitioners of micro-finance.
Figure 2.3: Types of micro-finance institutions
Type Nature of operations
Informal financial systems (Family, traditional savings and money lenders)
This system includes entities and individuals operating outside the domain of the financial system. It includes financing from family and friends and unregistered supplier credit. This is a high risk form of financing. Interest rates could be as high as more than 100 per cent and repayment terms are often quite flexible.
Semi-formal finance
(Cooperative and village bank)
Semi-formal lending institutions, such as the cooperative or village bank are the dominant and sustainable traditional institutions that meet the financial and social needs of the poor. This is a dominant form of credit and savings in urban and rural areas and provides a lending option to small and medium enterprises or individual needs. Members are required to attend scheduled meetings and the group can be dissolved after each member has had a turn at borrowing. NGOs (International and national aid programs and para-public organizations)
Many donors provide funds to NGO‟s for distribution to needy small and medium enterprises. Most of their programmes take the form of community lending and saving cooperatives, with high interest rates and inflexible repayment terms.
Micro-finance institutions - (Micro-credit, savings, insurance and money transfers)
The main objective of micro-finance institutions is the delivery of financial services (micro-loans, micro-savings, micro-insurance, money transfers, etc.) to a large number of productive but resource-poor people in rural and urban areas, including small and medium enterprises, in a cost effective and sustainable way. The
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interventions of the micro-finance institutions are intended to make a positive and measurable impact on the lives of the poor.
Commercial banks (Commercial banks and agricultural credit banks)
Commercial banks have a limited capacity to deal with small and medium enterprise financing and are not favourably disposed towards small loans. A very low proportion of informal business sector operators have access to these formal financial institutions.
Source: Jegatheesan et al. (2011:300).
2.7 THE PERFORMANCE OF MICRO-FINANCE IN SELECTED COUNTRIES
It has been documented that the effects or interventions of micro-finance institutions led to either a positive or a negative performance of small and medium enterprises. This provision of micro-credit and various services by micro-finance institutions to stimulate growth has produced mixed results.
Maksudova (2010:3) confirmed that less developed economies that further advance the impact of micro-finance as a non-traditional bank may be poisoning the economy. He further stated that micro-finance directly contributes to economic growth by improving the value of small entrepreneurship and businesses. It indirectly contributes to economic growth through interaction with the financial sector development, captured by improved access to finance (financial deepening) and the integration of households‟ financial needs.
A study done on the impact of training on the performance of small and medium enterprises served by micro-finance institutions in Tanzania, revealed that the output of enterprises that received training increased, compared to those who obtained micro-credit without training (Kessy & Tembu, 2010: 105). Similarly, Maksudova (2010:2) argued that the dynamic growth of micro-finance in recent decades, and especially amidst the global financial crisis, signals that alternative means of
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financing could play a significant role by filling the gaps in formal intermediation and also by contributing to the financial stability of a country.
Aroca and Hewings (2009: 109) analysed the Brazilian and Chilean banks and NGOs who accessed micro-credit programs. Using propensity score and matching techniques, they contrasted the average income of individuals who received micro-credit against the income of control groups, formed by respondents with similar descriptions. The two countries presented opposing results. The Brazilian result indicated a high positive impact of micro-credit programs, especially for those administered by banks. In contrast, the Chilean scenario presented a weaker substantiation for the micro-credit administered by banks. In support of the NGO-based programs, the evidence was negative on the average income for their clients.
Akingunola and Onayemi (2011:331) conducted a study among women in the Ogun and Oyo States of Nigeria and found that formal financial institutions may not really be discriminating against women; rather, they were unable to satisfy their credit needs because of the low income-yielding propensity of their businesses as well as the inability of these women‟s small and medium enterprises to provide acceptable collateral securities.
Nugroho‟s (2010:382) research in Indonesia established that informal micro-finance institutions such as moneylenders and cooperatives can minimise the default rate on small loans through maintaining close contact and friendships with their poor clients. The study also further found that access to micro-finance services contributed to the welfare of the poor.
Achoja (2011:275) carried out a study in the Delta State, Nigeria among the micro-finance user groups and found a recorded loan marketing efficiency of 80.20%. He recommended that micro-finance user groups should form linkage with financial institutions for the purpose of a credit mobilisation scheme.
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Akram and Hussain (2011:90) conducted a study in the District Okara in Pakistan. Their findings were that micro-finance was efficiently serving the poor by increasing their income level. 85.40% of their respondents stated that their income level had increased after receiving micro-finance facilities and therefore improving their living standard.
Another study carried out by Durrani et al. (2011:138) in Pakistan revealed that access and efficient provision of micro-credit could enable the poor to smooth their consumption, better manage their risks, gradually build their assets, develop their micro-enterprises, enhance their income earning capacity, and enjoy an improved quality of life. It also indicated that with little effort, the performance of micro-finance institutions can be improved and these institutions can play their role better in poverty alleviation than usual.
Cooke (2011:70) analysed the different effects that micro-credit would have on producers of raw material, and second order producers that fashioned raw material into products. The conclusion of the study was that micro-lending has the potential to do harm to a developing marketplace, and micro-creditors must be cognisant of possible unintended consequences of their micro-loans. Even after paying back micro-loans, the micro-loan recipients were much better off than those who did not receive a micro-loan.
Qureshi et al. (2012:717) pointed out that micro-finance helps different categories of poor people and has significantly positive effects on the access to micro-credit. Results also show that there is improvement in the micro-finance sector over recent years in terms of investments, active borrowers, branches and personnel.
Mutengezanwa et al. (2011:161, 169) conducted a research focusing on the topic under discussion and discovered a positive relationship between micro-credit and the socio-economic lives of people. The study revealed that the activities of micro-finance institutions resulted in an increased social interaction and socio-economic sustainability. Micro-finance institutions assist micro-entrepreneurs to fund their
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projects, especially those who could not access micro-loans from traditional banks. Beneficiaries indicated that micro-finance institutions have a positive impact on the socio-economic lives of people.
Idolor and Eriki's (2012:51) findings revealed that micro-loans and advances from micro-finance banks had a significant impact on the education and life expectancy indexes. Micro-finance banks' asset base had a negative impact on the human development index and its components, while deposit liabilities of micro-finance banks also had a negative impact on the human development index and its components.
Ondoro and Omena (2012:32) conducted a study in Kenya and found that micro-finance had no significant relationship between micro-micro-finance services savings or investment among the youth in the Migori. However, a positive effect was revealed of micro-finance services on financial management skills.
Maksudova (2010:16) established that there was evidence of robust contributions to micro-finance and it was positive only in less developed countries where formal financial intermediation is immature, leaving significant space for alternative means such as micro-finance. The positive impact, however, runs the risk to be eroded as middle income countries catch up with the developed world.
2.8 THE PERFORMANCE OF MICRO-FINANCE IN THE DEMOCRATIC
REPUBLIC OF CONGO
The micro-finance sector in the Democratic Republic of Congo exists in different forms. Since the collapse of the banking system, micro-finance institutions operating both in the formal and informal sectors have become the main source of financial services for the country. Helmsmüller (2012:1) traced the origin of formal micro-finance since 1956 and observed its recent growth in serving a number of clients in the same manner that commercial banks do. Although a variety of micro-finance institutions exist to serve clients in different parts of the country, they hardly serve
